Margaret's home loan with Barrow Bank approved subject to suitable life cover. What is the main disadvantage of arranging her own life policy?

• A. she owns the policy
• B. the policy will have to be formally assigned to the lender and separate payments will need to be made
• C. if she pays off the loan early, the policy is released to her rather than the lender
• D. she is limited in the optional benefits she can choose

Answer: (B)

The key idea here is that the loan is secured by life cover. If Margaret arranges her own life policy, the lender must have the policy formally assigned to them so they can use the policy proceeds to repay the loan if she dies. This creates extra administrative steps and usually means premiums are paid separately from the mortgage. That added complexity and the ongoing requirement to keep the policy assigned to the lender is the main drawback of arranging her own policy. The other points don’t capture this security and payment arrangement issue as the primary disadvantage.